not every spac is pure garbage
The TechCrunch Exchange: SPACs and Recent IPOs
Welcome to this week’s edition of The TechCrunch Exchange, a newsletter focused on startups and market trends. This publication is an extension of the daily column found on Extra Crunch, offered freely for your weekend review. Interested in receiving it directly? Sign up here.
Let’s delve into the world of finance, startups, and current IPO speculation.
A Moment to Reflect on SPACs
Despite a condensed workweek, the volume of news has been substantial. Let's take a moment to analyze SPACs as a welcome diversion.
This isn’t a detailed analysis of a SPAC investor presentation. However, we will examine the Babylon Health SPAC deal on Monday. Our focus today is on the public debuts of SoFi and BarkBox, both facilitated through blank-check transactions.
SoFi's Public Debut
Both companies commenced trading this week, following announcements of their public offerings some time ago. Did their launches proceed smoothly? Here’s a report from CNBC regarding SoFi’s initial trading period:
This successful start isn’t just beneficial for SoFi; it also represents a positive outcome for Chamath Palihapitiya, whose SPAC investments have faced scrutiny recently. While all SPAC-driven debuts involve speculation, some investors seemed to prioritize Palihapitiya’s reputation over underlying fundamentals.
BarkBox Enters the Market
BarkBox also experienced a favorable launch this week after completing its SPAC merger, as detailed by Barrons:
Although BarkBox’s stock has seen some profit-taking, it successfully went public without dropping below its initial SPAC price. This is a positive result considering the changing market conditions since the flotation was first proposed.
Implications for the SPAC Market
Two successful debuts in a single week provide encouragement for the SPAC market and the numerous participants involved in blank-check and startup transactions. While two positive outcomes don’t establish a definitive trend, it appears that the SPAC route remains viable for companies generating significant revenue, and isn’t as fraught with challenges as previously anticipated.
Here's a summary of key takeaways:
- SoFi and BarkBox both had successful SPAC-led public debuts.
- Chamath Palihapitiya’s reputation played a role in SoFi’s initial investor interest.
- Companies with substantial revenue streams are finding the SPAC route to be less risky.
A Cryptocurrency Investment
The combination of Special Purpose Acquisition Companies (SPACs) and cryptocurrency is a development that warrants attention. A fusion of these two financial instruments is now underway.
This week, Circle, a company specializing in cryptocurrencies, particularly stablecoins, secured $440 million in funding. This substantial capital injection is noteworthy for a company primarily recognized for its USDC stablecoin, and reports suggest a potential initial public offering facilitated by a SPAC.
Understanding Stablecoins
A stablecoin is a type of cryptocurrency designed to maintain a stable value relative to a traditional asset. In the instance of USDC, the value is directly linked to the US dollar. These digital assets serve as convenient alternatives to fiat currencies within the cryptocurrency ecosystem and have gained significant traction.
Circle’s USDC currently boasts a circulating supply of $22.8 billion, with billions of dollars in daily transaction volume, according to CoinMarketCap. This demonstrates considerable adoption.
However, the precise mechanisms through which the company achieves substantial revenue with high gross margins remain somewhat unclear. This is particularly intriguing considering the recent influx of nearly half a billion dollars in private capital.
Therefore, a SPAC-led IPO could provide valuable transparency. We anticipate the disclosure of financial details, which are keenly awaited to satisfy our understanding of the company’s performance.
The need for financial clarity is paramount, and a public offering via a SPAC may be the quickest route to obtaining it.
Examining Growth Trends
Recently, Ron and I analyzed the financial reports of several publicly traded companies. Our investigation revealed that the anticipated digital transformation acceleration is, in fact, materializing for a select group of businesses.
Further news this week has reinforced this observation. Zoom’s latest earnings report, for instance, validates our core hypothesis. The company experienced a revenue increase of 191% in the first quarter of fiscal year 2022 when contrasted with the first quarter of fiscal year 2021 – a remarkably strong performance.
Conversely, Dropbox and Box are currently facing increased scrutiny from investors. These companies, once highly regarded in the private market, are encountering obstacles to growth and are consequently receiving criticism.
The imperative to grow or risk failure extends beyond the startup world. It is a critical necessity for software companies seeking to maintain control over their future.
Key Takeaways:
- The digital transformation is demonstrably impacting revenue growth for some companies.
- Zoom’s Q1 F2022 results showcase significant year-over-year revenue gains.
- Dropbox and Box are under pressure due to slowing growth rates.
- Sustained growth is essential for software companies to remain competitive.
Maintaining a trajectory of expansion is no longer simply advisable; it’s fundamental to long-term viability within the software industry.
Alex